Money fails to reach hardest-hit homeownersby Peter Miller
It’s hard to ignore the problem of foreclosures in this country. Millions of foreclosure filings have been sent out and millions more could be just around the corner. What’s worse is that according to the Federal Reserve, some 12 million homeowners now owe more on their mortgages than their homes are worth.
In an effort to help troubled homeowners nationwide, President Obama announced a plan in February of 2010 to provide the hardest-hit states with some direct funding. Along the way, the Hardest Hit Housing Markets program was expanded to include more money to more states. Unfortunately, according to a recent report, only a tiny percentage of the government money has actually been used for its intended purposes.
A report released last week from the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) found that of the $7.6 billion that was set aside for the hardest-hit fund, only $217.4 million in assistance has been provided to 30,640 homeowners. That’s approximately 3 percent of the TARP funds allocated to those states in need.
As originally proposed, the money was going to be used for five housing related purposes:
- Principal reductions
- Second-lien reductions or payoffs
- Reinstatement through the payment of past due amounts
- Unemployment assistance
- Transition assistance
Notice that of the five categories above, four of them directly concern real estate. Given that the program concerns the hardest-hit housing markets, one might reasonably expect that 80 percent or so of the money would go directly to homeowners who could use the money to pay down debt.
Where did the rest of the money go?
The money went to help the unemployed. That is not a terrible choice but it is not necessarily the best option to help relieve the mortgage mess.
It’s not a surprise that the states would use billions of federal dollars for unemployment support rather than for mortgages. The states themselves are strapped for cash. Continuing unemployment benefits has been a huge political tussle in Washington and across the country. For many, unemployment benefits are the only thing which prevents starvation and homelessness.
Looking back at H4H
What’s amazing about the hardest-hit program is that the results were entirely predictable. To understand why, just look at the 2008 Hope for Homeowners program. Hope for Homeowners (H4H) was designed so that borrowers with toxic mortgages could refinance into FHA loans.
There’s no doubt that had the country refinanced a huge number of toxic loans back in 2008, we surely would not have the foreclosure problems we have today. Predictably, no such mass refinancing took place. In all of fiscal 2011, there were just 632 H4H mortgages, compared to nearly 2.7 million foreclosure filings, default notices, scheduled auctions and bank repossessions.
The strange thing about H4H is that the program was really set up not only to benefit mortgage borrowers but also to benefit lenders and the overall financial system. It’s hard to argue that money used to help people without jobs is somehow unfair, but it’s easy to argue that the same money might have been just as well spent–or perhaps better spent–helping homeowners.